CEC calls on COAG to continue NEG policy architecture

The Clean Energy Council has called on the COAG Energy Council to continue the detailed design and implementation of the National Energy Guarantee (NEG) policy architecture at its 10 August meeting, but continues to warn that the proposed emissions reduction target remains too low to encourage sufficient new investment in energy generation.

Clean Energy Council chief executive Kane Thornton said most credible analysis suggests that the current 26% emission reduction target would be met by the electricity sector in just a few years’ time, due to the current wave of investment under the national Renewable Energy Target.

“Encouraging new investment into the next decade remains critical to reducing power prices as our old coal-fired power plants continue to close,” Thornton said.

“The Clean Energy Council is also calling for carbon offsets to be excluded from the scheme. Out-sourcing our emissions overseas or to other sectors means lower investment in new Australian energy projects, which would lead to both higher power prices and a missed opportunity to invest in regional jobs.”

Thornton said the continued development of the policy architecture with the support of both major federal political parties and every state and territory government would be a positive step forward, providing a policy framework that can be ratcheted up in the future.

“The ESB’s Decision Paper outlining the final design was provided to state and territory governments yesterday, and this paper has now leaked into the public domain. While the detailed design is important, our primary concerns remain with the emissions reduction target, the inclusion of offsets and the timing of future reviews – all elements that are expected to be addressed by the Federal Government in a separate paper ahead of the August 10 meeting.

“With the policy architecture settled, it would be easier to increase the emissions target in the future. We continue to urge the government to adopt a stronger and more realistic target that continues the momentum in clean energy investment and drives the transition of the energy sector.”

Thornton said the Australian energy sector has the potential to play a much greater role than other sectors of the economy – such as agriculture and transport – where emission reductions are far more difficult and expensive to achieve.

The Clean Energy Council believes that the current emission reduction target will place responsibility for the energy transition on state and territory governments and energy customers, which are increasingly installing or procuring clean energy to reduce their energy prices.

Thornton said that in light of the limited impact of a 26 per cent target on new investment, state and territory targets would continue to be important in providing the investment confidence for clean energy investment and job opportunities.

The Clean Energy Council’s support for the NEG is contingent on the COAG Energy Council addressing the following issues, the majority of which will be proposed by the Commonwealth Government (rather than the ESB):

the 26% abatement target is a floor and the target trajectory not back-loaded. The emissions reduction requirement is also adopted in WA and the NT to ensure the nationwide transition of the energy sector

there are no constraints within the policy architecture that limit future governments from increasing the emissions target, nor any disincentive for state and territory governments to implement their own clean energy targets and schemes

a commitment to annual review of future abatement targets, with a 5-year rolling forecast and a 3-year notification period. It is critical that this rolling revision of targets is accompanied by a commitment that the targets would only ever be ratcheted upwards.

offsets are not included in the scheme, as their inclusion will simply defer new investment and result in higher power prices

the implementation of the NEG does not change the current Renewable Energy Target (RET), and that the Large-scale Renewable Energy Target and Small-scale Renewable Energy Scheme remain unchanged

the policy architecture provides customers (both households and businesses) with the opportunity to determine how the emissions reductions from their own renewable energy systems or contracts are treated or directed, including voluntarily surrendering them

the NEG is not accompanied by a commitment to build new coal-fired generation as this would create a substantial market distortion and fundamentally undermine the integrity and effectiveness of the NEG and the confidence of private investors to build new generation

there will be further consultation on the NEG’s legislative and practical details to ensure stakeholder confidence in the policy

there is careful consideration of the elements of the design that are prescribed in the National Electricity Law versus sitting in the National Electricity Rules. This will ensure balance between long-term certainty and the inevitable requirement for minor refinements to the scheme’s operations, and that any future changes are subject to a consultative process with industry.

“The Clean Energy Council looks forward to working with all COAG Energy Council members to ensure an effective NEG is developed that addresses these key issues,” Thornton said.